The 179D commercial building energy-efficiency tax deduction has just been made permanent by a new piece of legislation. Find out what this means for your building project and how to take advantage of this amazing opportunity in 2021!
What Is the 179D Tax Deduction?
In short, the 179D commercial building tax deduction is a government grants program that was put in place to reduce the cost of new energy-efficient systems in commercial buildings, as well as some government buildings. As part of a key piece of public policy, the 179D commercial building tax deduction reduces the green premium. It has effectively created the needed incentives for commercial companies that must decide between simply appearing environmentally friendly versus actually going green and making a difference.
In terms of dollars and cents, the 179D commercial buildings energy efficiency tax deduction allows property owners to claim a $1.80 per square foot tax deduction (based on the area of the building, not the dollar amount expended) for installing qualifying systems and buildings. Specifically, systems that reduced the building’s total energy and power cost by 50% or more, such as interior lighting, building envelope, heating/cooling ventilation, and hot water systems.
Where does the deduction come from? A little bit on the history of the 179D:
- The 179D deduction originates from the department of renewable energy, and it was originally written into law in 2006.
- The tax deduction was designed to be a significant financial incentive targeting building owners (commercial or multifamily), tenants making improvements, architects, engineers, and other designers of government buildings.
- The focus was on promoting new, more efficient systems in the commercial buildings.
- The overarching goal was to cut down on waste, on excess electricity we don’t need, and on carbon emissions.
New Policy Updates to the 179D Commercial Buildings Energy-Efficiency Tax Deduction:
This critical tax deduction was originally scheduled to expire at the end of 2020. Luckily, with passing votes from both houses of Congress, the Consolidated Appropriations Act of 2021 was signed into law by President Trump on December 27th, and it provides that the 179D energy-efficient commercial buildings federal tax deduction be made permanent! In addition, 179D has been retroactively extended to include projects completed in 2018, 2019 & 2020. What are you waiting for? Find out how to take advantage of this amazing opportunity!
What Are The Benefits Of The 179D Tax Deduction?
Wondering what the overall benefits might look like for your building if you were to qualify for the 179D energy-efficient commercial buildings federal tax deduction? Take a look at this reference chart by Energy Tax Savers Inc. for some sample sizes and examples:
As you can see, the benefits really stack up, even for those just qualifying for partial deductions! If you’re really looking to get the most bang for your buck, consider investing in a lighting project. It is the easiest path to receiving the tax break and can yield the greatest ROI.
For the purpose of this article, we’ll focus on exactly how to score the biggest possible 179D federal tax deduction with new energy-efficient commercial lighting. Learn how to minimize your commercial carbon footprint while maximizing your potential savings!
How Do I Qualify For The 179D Commercial Building Tax Deduction?
The last thing you want to do is enter into a big project, expecting to get a big tax break and then not actually qualify for it come year-end! As you know, any sizable commercial building tax deductions require some hoops to be jumped through and boxes to be checked. Never fear, qualifying for the 179D tax deduction is not terribly complicated. Just follow these key steps to make sure that your project stays on track and eligible.
The first thing you need to keep in mind when trying to apply for the 179D deduction is you need to have a licensed contractor evaluate your building before and after your planned project. This means that before you put any new system in, you should already have a write-up for what your building is spending as far as efficiency goes. To earn the tax credit you’ll have to prove that your new system reduces the building’s total energy and power cost by 50% or more, and you can’t prove that if you don’t have a data point recorded for the old system’s efficiency. Most building owners keep a close eye on where their money is going, so hopefully, you have well-kept records of your utilities on hand.
The other critical step comes after installation. Once you get your new lights in, you need the contractor who is licensed in your state to make an evaluation of the new system, what the output is in all the various environmental factors that are around your light, because that’s what’s going to seal the deal and qualify you for the deduction.
New Buildings vs. Older Building Renovations
When determining eligibility for the 179D tax deduction, it is relevant to consider whether the building is new or existing. If it is a new building and you’re building it out, qualifying for the full deduction is typically very easy because most of the buildings in the United States have highly inefficient systems already. So to qualify on a brand new build-out is often a piece of cake. Likely, whoever’s building it for you may have already told you about this tax deduction!
Older building renovations, on the other hand, require a bit more attention. For example, people that aren’t working side by side with contractors day in and day out may not even know about the 179D or how to optimize the project to qualify for the deduction.
The good news is, to put in a new system with a 50% reduction is still very doable in an older building because of the general rule of thumb for lighting:
- If you’re going to go from a fluorescent (which is what you likely have, if you haven’t updated your lights in about the last five to 10 years) to LED, almost always it results in 50% savings in energy usage and spending. It’s a very consistent result!
If you switch from all fluorescent to LED, you likely won’t even need to worry about qualifying because this is the case. On the off chance that you get your evaluation and if you can’t quite get to 50% from fluorescent to LED, look into solar. This is a solid plan B, because sometimes you can get solar systems for free just because they qualify you for this grant.
In rare instances, some buildings are so old that they still have halogen or HID lighting. That means the lights haven’t been updated in 15 to 20 years! But that’s actually very advantageous for you because making the switch from halogen to LED typically results in a 75% reduction in energy usage and costs!
Energy-Efficient Lighting and ROI
There are many systems that will qualify you for the 179D tax deduction, but we are a fan of lighting because of the amazing ROI. Here’s an example of the 179D in action:
The average size of a warehouse is 16,400 feet. If you replace the lighting system in your 16,000-foot warehouse, which is average, at $1.80 per square foot, that’s a $29,000 tax deduction. Rounded down for an easy number, $29,000 is what you’d get just for replacing the lighting system in your building with something more efficient. The beauty of it is, there are plenty of lighting systems that won’t even cost you this amount of money in a 16,000 square foot building. So in many instances, this tax deduction can almost fund the price of the lighting system itself!
What Is The Process For Claiming 179D Tax Deduction?
So maybe you realize, I’ve made major updates or that sounds a lot like my project, how do I even file? How complicated is this going to be? No worries! It’s very, very simple to file for the179D energy-efficient commercial buildings federal tax deduction. Many people miss out on this amazing opportunity because they wrongly assume that filing will be more trouble than it’s worth. But what’s a little paperwork worth to you? Upwards of $30,000??
Just like any other tax deduction, your tax software or your tax guy can do this for you. It’s a line item, very straightforward. Along with your tax forms, you submit the report from your licensed contractor, with the existing, over to the new and it all gets filed under ‘other deductions’. And just like that, you qualify!
That’s the facts. This comes off your taxes. And tax season is coming up! This is a fantastic time to do it because this money, it’s going to come right back in your pocket here in March when taxes are due. So if you get this building put in now, you got that money coming back in just a couple of months, that’s going to pay for your lighting system. And then you could just enjoy the sweet, sweet ROI that comes from a 50 or 75% reduction in your lighting for a highly efficient system.
Ready to maximize your tax deductions? Contact our team at bizreps.ca/schedule! We work with companies that are ready to take the next step into better lighting, more efficient lighting that’s going to save money and qualify you for grants like the 179D commercial reduction. There are so many more grants and federal programs involved with solar and utility rebates that we can consult with you on as well.